Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's Fourth Quarter and Full Year 2020 Earnings Conference Call. Today's call is being recorded, and an audio webcast and presentation are available in the Investor Relations section of the company's website, ardmoreshipping.com.

We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference call will be accessible anytime during the next two weeks by dialing 1-877-344-7529 or 1-412-317-0088 and entering passcode 10151864.

At this time, we'll turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping. Please go ahead..

Good morning, and welcome to Ardmore Shipping's Fourth Quarter and Full Year 2020 Earnings Call. First, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements..

Thanks, Tony, and welcome, everyone. Before we begin our conference call, I would like to direct all participants to our website, at ardmoreshipping.com, where you will find a link this morning's third quarter 2020 earnings release and presentation.

Tony and I will take about 15 minutes to go through the presentation and then open up the call to questions. Turning to Slide 2. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those in forward-looking statements.

Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the third quarter 2020 earnings release which is available on our website. And now I'll turn the call back over to Tony..

Thanks, Paul. So first, to outline the format of today's call, to begin with, I'll discuss financial highlights and market developments, then some comments on the energy transition.

Paul will discuss product and chemical tanker fundamentals and provide a detailed performance update, and then I'll conclude the presentation, and we'll open up the call for questions. Turning first to Slide 4.

Last year started off strong with IMO 2020, rose to record highs with the Saudi oil price war and pandemic disruption, then to new lows by year-end. Nevertheless, resulting in overall positive adjusted net earnings of $0.5 million or $0.02 per share and Ardmore spot MR performance of just under $16,000 a day.

Fourth quarter financial results are reflective of a trough in product tanker rates, with an adjusted loss of $13 million or $0.39 per share and spot MR performance of $9,600 per day.

Chemical tankers didn't enjoy the same volatility as MRs earlier in the year, but rates have fared better in the second half, earning just under $11,000 a day or $11,800 on a capital adjusted basis to the cost of an MR. Meanwhile, Ardmore had been active and taking advantage of these volatile market conditions.

We completed the sale of the Ardmore Seamariner just at the end of the year. This was replaced by the 2010 built Ardmore Seafarer, which we purchased in the third quarter at an attractive price and a much lower breakeven rate of $11,700 per day.

We completed financing for the Ardmore Seafarer with Iyo Bank at LIBOR plus 2.25%, our lowest bank spread to date. We took advantage of weak market conditions by carrying out 6 dockings in the fourth quarter. We just recently fixed 3 MRs on 1-year time charters to partly derisk near-term cash flow.

We repurchased just under 100,000 shares in the fourth quarter at a weighted average price of $2.91 per share. And we've maintained a strong liquidity position and balance sheet with year-end cash of just over $58 million and corporate leverage on a net debt basis of 50%..

Thanks, Tony, and starting off with the market fundamentals. The outlook for the product and chemical tanker demand remains very positive. An economic rebound is widely expected post pandemic. Both the World Bank and the IMF are expecting the global economy to expand by 4% this year, with China alone forecast to grow by 7.9% in 2021.

The IEA are forecasting global oil demand to increase by 8% or 7.4 million barrels a day, getting back to pre-COVID levels of 99 million to 100 million barrels a day towards the end of this year and to grow by approximately 0.85% per annum thereafter out to 2030.

Global refining throughput is expected to increase this year by 6% or 4.5 million barrels a day, further boosting cargo volumes. And the ongoing trend in refinery dislocation is accelerating as smaller refineries give way to new mega-scale export-oriented refineries.

1.9 million barrels a day of refinery capacity closed in 2020 in Europe, Americas, Japan, Philippines and Australia, while 5.8 million barrels of new capacities coming online between the end of 2020 through 2024 in the Middle East and China, resulting in greater voyage distances and ton-mile demand.

Meanwhile product and chemical tanker supply is looking increasingly attractive. The energy transition looks set to accelerate a significant turnover in the global fleet as increased emissions and efficiency targets put pressure on older, less-efficient ships, resulting in more scrapping.

And to put this into perspective, over 800 ships or 26% of the product tanker fleet will be over 20 years old and within the scrapping zone in the next 5 years. The current order book is already at all-time lows.

Product tanker order book is 6.3% or 193 ships delivering over the next 3 years, and we expect fleet growth net of scrapping to be approximately 1% to 2% per annum for the next 2 years. Chemical tanker order book is 3.6% or 64 ships. And net of scrapping, the expected fleet growth is less than 1% per annum for at least the next 2 years.

New ship ordering is expected to remain low until there is further clarity on propulsion technology and emissions regulations as well as an economic justification for ordering. Moving to Slide 10 for a summary of our quarterly performance and our financials.

We're reporting a profitable full year 2020, a very strong first half characterized by market volatility and oversupply, followed by a weaker second half, reflecting the impact of pandemic on oil demand. As Tony mentioned, charter rates have improved in the first few weeks of this year, and we're currently trending higher than the fourth quarter..

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Pardon me, Paul. Your line is chopping off..

Can you hear me now?.

No, your line is breaking off..

Okay..

Could you try dialing back in?.

Yes. Okay..

I would suggest you to reconnect to the call again..

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Okay operator, are we back on?.

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Okay. Thanks. So I think Paul was almost done. And the good news is I had a chance to completely rewrite the summary. So here we go. So anyway, so to summarize, again, 2020 overall was a profitable year, but a roller-coaster in terms of performance and a reminder of our earnings potential with our best voyage coming in at $77,000 a day over 50 days.

While the market remains challenging, rates have improved with the winter -- with winter conditions and the beginnings of economic recovery. We do expect generally weak market conditions to persist until a full global economic recovery is underway, which we anticipate will occur in the second half of 2021.

Meantime, we remain financially conservative with strong cash reserves and keeping the focus on performance and cost control. At the same time, we're also looking beyond the immediate challenges to future opportunities in a full market recovery and in the energy transition.

And as a final point, while we all want to look forward to a brighter future, we must not forget the hardships that the ongoing pandemic presents, most of all to our seafarers, but also to shore staff in lockdown and in travel-related quarantine on our behalf.

We want to acknowledge their sacrifices and thank them for their perseverance and their professionalism. And on that, we're happy to open up the call for questions..

The first question comes from Jon Chappell with Evercore..

Tony, first question is a little bit shorter term, and then I'll switch to a longer-term one. The time charter outs, certainly not something you guys have done recently. And given your outlook for the market, seems to be somewhat bottom ticking.

Maybe you can just give us, first of all, the numbers around the time charters, 3, 1 years, what the rate is roughly and then also the thought process behind locking in for a year, given your kind of 2 time horizon theme on 2021 with the second half being much better?.

Jon, just luckily, trade winds has helped us out with an article today on MR time charter rates and the rates that we booked are consistent with that. The reason why we're doing it is that we do think that there's -- it's going to be choppy for the next number of months.

We think the rate probably reflects how on average the year is going to turn out, which would suggest rates in the high teens later in the year on a spot basis. So we're pretty happy with the rates. So I think it helps us out. And we don't think we're leaving a lot on the table..

Okay.

And then just to be clear, that 45% of 1Q that you've given, does that incorporate the time charter rates as well, which would obviously be much higher than the spot? Or is that just purely what your ships are in the spot market?.

No, Jon, that's incorporated. That's a blended between the time charter ships and the spot ships and the time charters were fixed during the quarter. So -- but 2Q would have a higher percentage of fixed days. But to answer your question, the number of quarters is a blended between the TCE and the spot..

Do you have it on a pure spot basis?.

On a pure spot basis, it is a couple of hundred dollars a day or less, not much. Given the rating, it's not a huge component of the first quarter..

Got it. And then bigger picture. Tony, I was going to ask before the call started. Bottom of the market, you have an optimistic outlook on the back half of this year and the rest of the decade, ending the year with $58 million of cash. Like it seems like this may be your time to expand the fleet.

But then you had the slide on the energy transition and kind of your next steps as far as that goes.

How are you thinking about expanding the fleet at the bottom of the market, while also retaining capital and thinking about the next evolution of whether it's fuel propulsion or any other steps necessary as part of the energy transition?.

Good question, Jon. I mean, look, there are a lot of competing priorities here. And we also want to remain financially conservative, right? So there's nothing I can articulate that's going to illuminate anything. We see opportunities in the energy transition. We think we've got a lot of upside and exposure to a recovering spot market.

And we maintain our priority on over time delevering..

The next question comes from Randy Giveans with Jefferies..

So I guess, following up on that. Looking at Slide 8, obviously, the outlook seems pretty attractive from both the supply and demand perspective. Slide 11, market is still very close to the bottom.

So what are your thoughts on maybe securing some additional time charter-ins, maybe not for a year, if you're just doing some outs for a year, but the 3- and 5-year time charter-in rate is only around $13,500, maybe $14,000 for an Eco.

What's your appetite there for some longer-term time charter-ins?.

We are being a little -- we are being a bit more active in the time charter space, both in and out. That will continue as we see opportunities. And a lot of it's kind of sort of fixture-specific. So I think everything you're saying makes a lot of sense. These are good ideas. We just have to wait and see what opportunities arise that are actionable..

Got it. Okay. Yes. On paper, it looks good, I guess, into practice. That's why you get the big bucks. All right. And then, I guess, on the share repurchase plan, obviously, nice to see that getting put to work, although it's only for, I don't know, $300,000.

So what determined that amount in the fourth quarter? And then going forward, is that the top priority for use of cash?.

Randy, no. I mean I think, look, as Tony kind of laid out, there's a lot of competing priorities for cash at the moment. The energy transition is a very exciting development. There will be opportunities to deploy our capital there. One of our top priorities is to maintain a strong liquidity position and pay down debt.

As also you've seen in the fourth quarter, we bought back some stock at a very attractive price. So it remains a tool in the tool box, but we've got to balance a number of competing objectives. And ultimately, the long-term goal here is to build long-term shareholder value. And I think there'll be lots of opportunities in that.

And the share repurchase will be one of them. But the energy transition plan is super exciting, and that has potential to create a lot of value here as well. So a lot of competing priorities. I'm very pleased to get the share repurchase a little bit down in the fourth quarter. And it's there to be used again as and when we kind of see fit.

But like Tony said, on the time charters, we're not going to tip our hand in advance..

Got it.

And then any rhyme or reason for that number? Or is that just kind of trading liquidity constraints?.

A little bit of that. It was -- the specific number is $98,000 and something. So $100,000 was round. We didn't just stop at $100,000. So no, no, it was purely a function of markets and timing. And we were at that time..

Sounds good. Yes. Congrats. Obviously, on a rollercoaster, but a pretty solid year..

This concludes the question-and-answer session. The conference has also now concluded. Thank you for attending today's presentation. You may now disconnect. .